Earnings Management and Earnings Thresholds -Evidence from Taiwan

[[abstract]]This paper examines whether managers manage earnings to satisfy various earnings thresholds including previous earnings, positive earnings, and analysts’ forecasts in the presence of institutional investor shareholdings and firm characteristics. In order to meet these noticeable thresholds, managers may use various earnings management tools, including discretionary accruals and asset sales, to manipulate earnings. In real life, these two tools could be used simultaneously because there are cost and efficiency differences between them in managing earnings. Hence, it is of interest to explore whether the two tools are complements or substitutes. The results are robust to several alternative explanations, including differences in institutional ownership and firm characteristics. This study concludes that managers manipulate earnings to satisfy important earnings thresholds no matter whether considering firm characteristics and the pressure from institution investors. Earnings Threshold, Simultaneous Equation Model, Earnings Management, Three Stage Least Square Regression, Panel Dat